Senators Arlen Specter (R-Pa.) and Charles E. Grassley (R.-Iowa) last week accused the Securities and Exchange Commission of fumbling an insider trading investigation last year involving Pequot Capital Management.

Specter and Grassley commented on the termination of former SEC attorney Gary Aguirre, who was fired after he complained that the Inspector General had allowed politics to interfere with the process of his investigation, according to the Washington Post.

The Judiciary committee’s review of the hedge fund case showed “extraordinarily lax enforcement by the SEC,” said Specter, who added that the SEC’s treatment of the case “may even indicate a cover-up.”

The investigation was the result of suspicions that the New York-based hedge fund had received a tip in 2001 about an impending $5.3 billion merger between General Electric and Heller Financial. Aguirre singled out John Mack, now chairman of Morgan Stanley, as the likely tipster but was prevented by superiors from questioning him. Aguirre was fired in September 2005.

In December, four of Aguirre’s superiors at the SEC told members of the Committee on the Judiciary that Aguirre was fired not because he complained about the Mack interview, but  because he was generally abrasive, temperamental and an a  poor team player.

However, one former co-worker corroborated Aguirre’s claims at that meeting.

Mack was, ultimately, interviewed in July 2006, but only to diffuse public criticism, the report said.

Grassley said that he hopes SEC Chairman Christopher Cox “takes [the committee report’s] findings to heart,” and that such missteps will not occur in future investigations.

The SEC, Grassley said,  “circled the wagons and it shot a whistle-blower.”

The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.

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